The employment report for May 2020, just released by the U.S. Bureau of Labor Statistics, has some surprising numbers.­ I’m not referring to the national employment or unemployment numbers (although they are surprising) but to the employment numbers for April for the insurance industry.

In April, you might remember, the numbers for the national economy were dreadful. The unemployment percentage shot up to 14.7 percent, and the number of people unemployed spiked to 20.7 million. The comparable numbers for subsets like the property/casualty (P/C) insurance industry aren’t released until a month later, but they became available today.

In April, P/C insurance carriers gained 3,000 jobs and life/annuity carriers gained 5,600 jobs! In April, health (mainly medical expense) carriers lost 1,900 jobs, and insurance brokerage and agencies lost 15,200 jobs. I suspect that the agent/brokerage losses were at small businesses that, in May, will completely reverse these losses as a result of the Paycheck Protection Program.

It looks like the insurance industry is doing its part to keep the economy running.

With a number of carriers increasing the credit they are giving on their policies, U.S. auto insurers will return over $14 billion to their customers nationwide in response to reduced driving during the pandemic, according to an Insurance Information Institute (Triple-I) estimate.

Auto insurers are giving refunds to their customers as people are driving less due to coronavirus shut-downs. No action is required by customers to receive credit in most cases, but to learn more, contact your auto insurer.

The 2020 Atlantic hurricane season activity is projected to be “well above average,” according to Triple-I non-resident scholar Dr. Phil Klotzbach.

Dr. Klotzbach, an atmospheric scientist at Colorado State University (CSU), and his team issued an updated forecast on June 4. They project the 2020 Atlantic hurricane season will have 19 named storms (including the storms that already formed), 9 hurricanes, and 4 major hurricanes.

Probabilities for at least one major (category 3-4-5) hurricane landfall on each of the following coastal areas are:

1) Entire continental U.S. coastline – 70 percent (average for last century is 52 percent)

2) U.S. East Coast, including Peninsula Florida – 46 percent (average for last century is 31 percent)

3) Gulf Coast from the Florida Panhandle westward to Brownsville – 45 percent (average for last century is 30 percent)

The probability for at least one major hurricane tracking into the Caribbean (10-20°n, 88-60°w) is 59 percent (average for last century is 42 percent).

An early forecast had predicted eight hurricanes. A typical year has 12 named storms and six hurricanes — three of them major. Major hurricanes are defined as Category 3, 4, and 5 storms, where wind speeds reach at least 111 miles per hour.

The active 2020 season is partly due to a warmer than normal eastern Atlantic, which is typically associated with more active Atlantic hurricane seasons. Tropical Storms Arthur, Bertha and Cristobal have already formed in the Atlantic as of June 2nd.

“It is important to recognize that these forecasts are not perfect,” said Klotzbach. And even when correct “we can’t say when or where these storms are going to track or if a significant hurricane is going to make landfall.”

“The general public needs to remember that it only takes one storm to make this an active season for you. So now is the time to get the hurricane preparedness kit together so that you will be ready when and if storms threaten,” he concluded.

Take steps to mitigate risks for your home and business – make simple repairs/clean-up of property.

Gather emergency supplies (have a minimum seven days of non-perishable food, one gallon of drinking water per person per day, and medications for all family members).

Take an inventory of your personal property – photos of possessions will make it much easier to file an insurance claim after the storm.

Review your homeowners, auto and business insurance coverage with your insurance professional to ensure you have appropriate coverage in case of loss.

If you don’t already have it, ask your insurance professional about adding flood coverage to your home or business policy. Flood damage is excluded under standard homeowners and renters insurance policies and ninety percent of natural disasters involve flooding. You don’t need to live in a flood zone to incur flood damage from a storm.

Prepare evacuation routes well ahead of time. Make sure you know how to quickly and safely escape your area if emergency management officials issue evacuation orders.

Don’t forget about your pets. When evacuating, many residents leave their pets behind because they have no place to take them. Make sure your local shelters will accept pets and gather information on hotels and motels that allow pets in guest rooms.

Riots across the U.S. and the subsequent damage to thousands of businesses have many business owners asking what their business insurance policies will cover. In this interview, Triple-I Vice President of Media Relations Loretta Worters answers some frequently asked questions about business insurance and what it covers.

Are businesses covered for
property damage from riots?

Yes, they are. Business property that has been damaged by
riot, civil commotion. vandalism and fire are covered under virtually all
businessowners and commercial insurance property policies. This typically includes
damage
to windows, doors, light fixtures, store windows and plate glass on office
fronts. There is also coverage for the contents of the building such as
furniture, office
supplies, computers or machinery that may be either damaged or stolen.

Should a
business insure its building and contents at replacement value or actual cash
value?

A business may
have the option to insure its business property at replacement value or actual cash value. The difference is that replacement
value coverage can help a business replace its property at market prices,
whereas actual cash value coverage takes depreciation into account. Replacement
value coverage costs more, but it also pays out more in the event of a claim.

What
about loss of income?

Businesses that are forced to suspend operations or limit
hours due to rioting, vandalism or civil commotion and have coverage for the
loss of income under business income insurance (also known as business
interruption, or BI) do have coverage. Coverage
is typically triggered if there is direct physical damage to the premises.

What
if a business is unable to access its property due to a
government order? If there
is a curfew in place, how will that impact a business?

While insurance policies vary, typically there is business interruption coverage for civil authority orders, such as curfews (when a business has reduced hours) or when a business is unable to access its property due to a government order requiring the business to close. Such coverage nearly always requires the existence of property damage within some limited geographic radius surrounding the policyholder’s location. This often ranges from 1 to 10 miles. Typically civil authority coverage has a waiting period of 24 to 72 hours, depending on the policy, before a policyholder can begin claiming the benefits of coverage. Coverage typically lasts up to four weeks, but the time period can be extended by paying an additional premium. However, once a curfew is lifted and business can resume, coverage ceases.

Is business income
coverage subject to a deductible?

Under most
policies, business income coverage is subject to either a waiting period, which
acts like a form of deductible or a monetary deductible.

How will
the amount of the business income loss be determined for a business?

Under most
policies, business income coverage includes both net income (the profit a business earns after expenses and
allowable deductions) and the cost of continuing
normal operations.

What
information does a business need to support its business income claim?

Most insurers require the following:

Profit and Loss statements

Sales records

Income tax returns

Rent or mortgage statements

Payroll records

What
if a business vehicle has been damaged in a riot?

Damage to vehicles is covered under the
optional comprehensive portion of an auto policy. This provides reimbursement
for damage to the vehicle and its contents caused by fire, falling objects,
vandalism or riot. Comprehensive coverage also reimburses a business if the
vehicle’s windshield is cracked or shattered. Some companies offer glass
coverage without a deductible.

Any advice for business owners?

Know your risks! Every smart business owner recognizes that business insurance is an essential element of an overall business plan. It should be factored in with fixed operational expenses like utilities. Without adequate coverage, business owners may have to pay out-of-pocket for costly damages from a riot, hurricane or other disaster, which could spell financial ruin.

“Social inflation” is the name used to describe growth in liability risks and costs related to litigation trends. A new white paper by the Insurance Research Council (IRC) examines this phenomenon and shows that insurers’ losses across several business lines have accelerated rapidly in recent years – much more rapidly than economic inflation alone can explain.

Some have tried to downplay the importance of social inflation and even cast doubt on its existence. The IRC study draws from a range of industry and scholarly resources to show that it does exist and hurts individuals and businesses who rely on insurance.

Using loss data published by the National Association of Insurance Commissioners (NAIC), the IRC documents loss trends in several key insurance lines, including commercial and personal auto insurance and product liability coverage. The report notes that loss trends reflected in the data “are consistent with anecdotal observations and concerns about the impact of social inflation on insurance claims costs.”

The IRC draws extensively from scholarly and industry resources to document the trends referenced above and link them to rising claims and losses that in turn lead to more expensive insurance for businesses and consumers. While the analysis is based on data and trends that predate the COVID-19 pandemic, the IRC notes that state efforts to impose business interruption coverage for economic losses under insurance policies that specifically exclude bacteria and virus-related losses are a current example of the forces that drive social inflation.

Social Inflation: Evidence and Impact on Property-Casualty Insurance is a valuable resource that explains the causes and impacts of social inflation. It can be downloaded from the IRC website.

Another wildfire season has begun. Almost 4.5 million U.S. homes are at high or extreme risk of wildfire, with more than 2 million in California alone.

Residents of wildfire prone areas and just about anyone who is seriously concerned about the dangers posed by wildfire could benefit from the National Fire Protection Association‘s webinars on how to prepare to defend against the destructive threat of wildfire.

A recording of the May 6 webinar on financial preparedness can be viewed here.

The presenters were Nicole Mahrt-Ganley, American Property
Casualty Insurance Association, and Janet Ruiz, Insurance Information Institute
(Triple-I). They offered guidance on how to read a homeowner’s insurance
policy, understand policy deductibles, and the factors to consider when
determining how much insurance coverage to purchase.

Ruiz and Mahrt-Ganley discussed how insurers assess a home’s
risk to wildfires through sophisticated technology and on-site inspections as
well as the ways an insurer calculates homeowner’s insurance premiums based on
the home’s loss history, location, age, size, and its construction type and
quality.

They also provided tips on how to develop an inventory of a
household’s personal possessions, steps to take if a homeowner’s insurance
policy is non-renewed, and how to navigate the insurance claims process.

The National Oceanic and
Atmospheric Administration (NOAA) has predicted an
above-normal hurricane season in terms of the total number of storms. Its
2020 Atlantic
Hurricane Season Outlook calls for
13-19 named storms, 6-10 hurricanes, and 3-6 major hurricanes.

This year, the COVID-19 pandemic
adds a layer of difficulty to hurricane preparedness, particularly when it
comes to evacuation plans. Florida state officials
anticipate the challenge of preparing shelters with social distancing measures
in place and have asked FEMA for guidance. New Orleans is advising residents to plan to include hand sanitizer and face
coverings in their emergency home kits and go-bags.

Likewise, the impending hurricane season subjects managing
pandemic response and reopening the economy in its wake to additional uncertainty.

Global Risk and Insurance Impacts

The European Commission should create a European Union-based
resilience framework to provide insurance cover for catastrophes, such as
pandemics and huge cyberattacks, the Federation of European Risk Management
(FERMA) said Tuesday.

Reuters
reports that the proposed framework would involve public-private
partnerships and could respond to events that create hefty business losses
without physical damage.

Commercial prices climb

Prices for commercial insurance are rising at rates not seen
for almost two decades, compounding pressure on businesses that are already
struggling to deal with the coronavirus crisis, The
Financial Times reports. Industry experts say that prices for some
types of cover are doubling as insurers attempt to repair some of the damage
the crisis has inflicted on their balance sheets.

Insurers are facing a double hit from coronavirus, the FT
says. Claims from customers could pass $100 billion in total, while there has
also been a hit to reserves from volatile financial markets.

French ruling puts coronavirus claims on global menu

Reuters
reports that AXA will meet the bulk of business interruption claims from
some restaurant owners in France after losing a court case seen as a potential
precedent for coronavirus-related disputes across the world.

A Paris court ruled last week that AXA should pay a
restaurant owner two months of revenue losses caused by the virus pandemic. AXA
had argued its policy did not cover business disruption caused by the health
crisis.

On May 21, Triple-I
CEO Sean Kevelighan testified before the U.S. House of Representatives’ Small Business Committee on the subject of business interruption
coverage.

Since the
outbreak of COVID-19, some legislators and advocates have pushed for policies
that would retroactively force insurers to pay for claims their insurance
policies were not priced to cover. The U.S. House session, “Business Interruption Coverage: Are
Policyholders Being Left Behind?,”
gave members of the committee the opportunity to hear from policyholders and
other interested stakeholders.

“An event like a global pandemic is uninsurable,” said Kevelighan in his statement. “Unlike a typical covered catastrophe, which is limited in terms of geography and time, pandemics have the potential to impact everywhere, all at once…. As such, this type of magnitude requires government resources to step in and provide support.”

Property
business insurance, in general, is meant to cover physical damage from perils
like fire, tornado, or hurricane,” he said. Forcing insurers to cover losses
related to the pandemic – which don’t involve physical damage to property – would
cost the industry between $150 billion to $400 billion per month.

“Make no
mistake; retroactive business interruption payouts would bankrupt insurers,”
said Kevelighan. “A recent Triple-I
economic analysis determined this type of approach would decimate the
industry’s financial resources in a matter of months, and at a time it needs
those monies for major natural disasters that insurance policies cover, such as
tornadoes, hurricanes, and wildfires.”

“Any efforts to retroactively rewrite business
interruption policies are not only unconstitutional (Article I) but would
imperil the insurance industry’s ability to pay covered insurance claims filed
by American homeowners, drivers, and injured workers,” Kevelighan said.

“The current
government shut-down orders do not trigger the vast majority of standard
business interruption policies because those orders do not qualify as direct
physical loss to property—a requirement under the policies,” he said.

“The insurance
industry is stepping up for Americans, with the likes of $10.5 billion in
personal auto insurance premium relief, $220 million in charitable donations,
and even more by keeping nearly two million Americans employed so insurance
customers will be covered, and have their claims handled, when other disasters
strike,” Kevelighan concluded.

The insurance industry is united in its position that pandemics are uninsurable, and the industry has some formidable support in that view. In a letter to the committee, the National Association of Insurance Commissioners (NAIC) said: “The current COVID-19 crisis has highlighted that many existing business interruption (BI) policies have specific exclusions for viruses or other diseases, and coverage is generally only triggered by actual physical damage. Therefore, these policies were generally not designed or priced to provide coverage for claims arising from COVID-19.”

The NAIC letter
said that the group opposes efforts to legislatively apply business
interruption coverage retroactively to claims based on COVID-19 and “has
serious concerns that requiring retroactive coverage of BI claims based on
COVID-19 would pose significant risks to the solvency of insurance companies
and could have systemic impacts on the industry as a whole and potentially the
financial system.”

And in a letter
to President Trump on May 18, six Republican Senators warned that altering
insurance law to cover all pandemic claims under business interruption policies
would devastate the capital reserved for paying other insurance claims.

As of this writing, officially about 90,000 Americans have died
from COVID-19. In addition, there have been other deaths that seem excessive
relative to “normal” statistics in prior years, suggesting the COVID-19 numbers
are an undercount. It’s also
possible that the “lockdown” imposed nearly nationally in late March,
April, and in part of May, added to the total through suicide, drug overdoses,
untreated conditions that would have been treated and managed in the absence of
the pandemic, and violence.

So,
let’s assume that, for the full year 2020, COVID-19 and related stresses cause
300,000 additional deaths. For simplicity, we’ll ignore any lockdown-related reductions
in deaths – from, for example, fewer traffic accidents, air pollution, and
other causes – that might be attributed to the pandemic.

Dr. Steven Weisbart
Triple-I Chief Economist

“It’s
unlikely that all the people who’ve died from COVID-19 had individual life
insurance, since many were age 60 or over,” Weisbart says. “Even if we assume a
third of these were insured – and, further, that two-thirds of younger people
who died also had life insurance – and that all these claims were in addition
to other causes of death, that would be 150,000 claims.”

In 2018, the latest year for which we have data, beneficiaries
under 2.7 million individual life insurance policies received death benefits.
So, although 150,000 additional death claims represent a large human toll, they
would be only a 5.6 percent increase over the 2.7 million baseline.

“That would result in total death benefits being paid to 2.85
million beneficiaries,” Weisbart says. “This is roughly the same as occurred in
2015 and well below the peak of 3.5 million in 2012.”

In other words, even with our conservative assumptions, paying the
additional deaths claims due to the pandemic is well within the industry’s financial
and operational ability.